One of the core conversations in the Android vs iOS debate is the place of mobile apps, web apps, and HTML5. This is a justifiable conversation because it plays a vital role in the income potential of both companies. In this article I will explore mobile, HTML5, as well as include an interview with someone on the ground floor of mobile development.
Brief History of HTML5
The HTML5 keyword is used alot and it is also used out of context in alot of situations. HTML5 is a series of web technologies that allow certain things to be done directly in the browser. The most note worthy of these is the Canvas tag which allows for drawing in the browser and also the video tag which allows for video streaming without a third party plugin. It should be noted however that drawing in the browser was possible before using something called SVG, however, Canvas makes it particularily easy.
HTML5 has mostly got a repuation as being a flash killer, however, while this may be true, with the rise of mobile and the decline in PC sales, HTML5 is slowly but surely having another singificant role.
HTML5 and Mobile
As Android started to get market share, developers became interested in ways to create applications that could work on multiple platforms without having to code more then once. There is an implied cost saving to this since you don't need two seperate applications built on different code.
With Facebook recently moving away from HTML5, this might leave people wondering what the future of mobile is and how this affects both iOS and Android. Web technologies continue to improve and HTML5 was recently declared being finished. Though it is finished, that doesn't assure HTML5 will suddenly take over app development, but it is a step in that direction.
Web Homefield Advatange
The web has a major advantage and that is most companies build a website before they build an app. If you want to be discovered as a company you're more likely to be discovered through a google search than an app search.
The problem is that alot of mobile websites are either bad or more likely non-existant, but this is starting to change. With HTML5 being finished and helpful frameworks like Jquery Mobile, it is easier for developers to create web apps and mobile sites that are designed to work with the very real growing mobile internet.
In a previous article, I talked about how I was using these new technologies to create a cross platform mobile experience using the new HTML5 technologies. While this is possible for what I am doing, this might not be possible for other applications such as intensive 3D grames. As phones improve, the option for creating intensive experiences using mobile technologies will become a reality, and this might fundamentally shift the current existing dynamics of mobile development.
What are the realities of this however, and are development firms embracing it? Additionally, are mobile development firms benefiting financially from Android in general? To try and answer some of these questions I found a development firm that has done alot of iOS development as well as mobile development for Android and mobile websites.
The Ground Floor
Red Piston is a mobile development company that has developed and designed hundreds of mobile apps, mobile games, and mobile websites. A significant amount of their previous work is for iOS by Apple (NASDAQ:AAPL). Jakub along with Red Piston has worked with some large brands including Lowes, Universal Records, Warner Brothers Music, Virgin, Mercedes, and GM.
In this article I interview Jakub Koter, the co-founder, and ask some very important questions regarding mobile development, HTML5, and the rise of Android.
Jonathan: How has the rise of Google's (NASDAQ:GOOG) Android market share affected or not affected your business?
Jakub: Initially when Android started getting a significant market share there was no change in business, clients still wanted iOS and dismissed the Android platform. Some of our own products we released Android did very poorly as well. Bottom line was Android users did not pay for apps. But this is changing slowly and as a result we do have an increase in android development especially the games we develop for our clients.
Jonathan: What is the types of Android development you're getting requests for?
Jakub: Mostly for game development and free apps that are purely for marketing purposes.
Jonathan: How do you feel about HTML5 and, in particular, its impact on mobile?
Jakub: Personally, I feel html5 is great. It's awesome for mobile sites and basic apps. It sucks for games and rich media apps. As most of the profitable apps on the AppStore are games, photo editing or music apps, many mobile devs have no choice but to use native tools. I have no doubt that once html5 can be as flexible as native tools all developers will embrace it for mobile app dev. I mean I love cross platform tools but most of them are still not there and you end up programming the app multiple times anyways. Impact will be huge, it's just not ready for prime time yet.
Jonathan: What percentage of your business comes from service contracts versus proprietary app sales?
Jakub: About 70% from clients, 30% from our own stuff.
Jonathan: Have you seen any growing trends in your business in regards to development?
Jakub: Cross platform tools are getting better and more devs are using them. Augmented reality apps seem to have attention of a lot of people.
Jonathan: Finally, do you personally have any forecasts for HTML5, Android, or iOS?
Jakub: Html 5 will probably not be seriously used for app development for another 3-5 years. Android will remain a major competitor to Apple. It will be interesting to see once Google starts making their own phones with all the Motorola resources they bought. Android will be used more as a platform for game consoles, tv's. etc. iOS will continue to set the standards.
While HTML5 is definitely on the rise, it appears that it still hasn't truly hit prime time. This might explain why Facebook had to switch, it was simply too soon.
What is interesting however is that the conflict between Android and iOS is significantly increasing the evolution of the web in general despite the particular economies of their app stores. Why could this be?
Developers simply don't like having to code more then once, especially in different languages. This pressure is moving a lot of developers to look for solutions outside of native coding such as myself for instance. It still comes down to what I am doing however, while I might be able to make a basic business app with web technologies, if I wanted to create a more intensive 3D experience I would have to resort to using native code. However, the idea that you could do 3D using web technologies is not out of reach because of things like Web GLbecoming more mature.
Google is banking on Web Search
There is no mystery that Google is banking on web. The problem is, like I mentioned earlier, the mobile web right now is generally not very good and this is why people generally tend to be drawn to mobile apps for the better experience.
Google is making significantly less then Apple in terms of the app store. However, the app store is not their play, they make money from eyeballs on advertising which comes mostly from their search. This is undeniable from the chart showing Google's breakdown below:
So while Google might make money from app sales, their goal is to get eye balls on search. Eric Schmidt himself noted that Google makes most of its advertising revenue from search.
The Android app store, intended or not, is nothing more then a sophisticated bait and switch. While users might get Android for the "apps" Google makes money when the users do search. This is important for Google investors to understand because this is where the money actually comes from with Android.
But Can't users do Google Search on iOS?
Yes they can, and Google even makes money off of those users but that is not important. When I was at Google IO 2 years ago, Google VP Ben Gomes retold a story of asking what was the value of Android because he was skeptical, why should they do it? weren't they an advertising company? Andy Rubin, currently the head of the secret Android project responded with two points.
1. It was critically important to provide a free operating system to encourage innovation at every level of the stack.
2. If Google did not act, they would be faced with a draconian future where there would only be one device.
Here is a link to the 2011 keynote.
While these comments are some what ideological and a bit hyperbolic, there is a strong benefit for Google because they knew that every user at some point would use the web. When you control 80%+ of the search market share this was a customer acquisition tool whether they acknowledged it or not.
Search Ad Revenue vs App Store Revenue
Android devices will not stop selling, and even if Apple reclaimed a lion share of the market share, Google could still make money from the growing sophistication of the mobile web.
Google maintains a 93.3% share of the overall $1.99 billion US mobile search ad market. Spending on mobile search ads in the US is expected to jump 55% to $3.6 billion next year-of which Google is expected to earn a 92.4% share. (source)
If the above trend continues, Google could soon be making as much money from mobile search as the Apple app store is making from app sales. The bottom line is that if people start using Google search and the mobile web more, Google will make more money, but this won't necessarily stop people from buy apps from the Apple store.
It might not be Either Or
What will happen if Google's search ad revenue continues to grow while Apple app store revenue continues to grow? You can buy an Apple device, buy apps, and still use Google search. Comparing Android's app store revenue to Apple's app store revenue is almost like comparing apples to oranges because that is not where Google is actually making their money from. So while the revenue generated by Apple's app store comes from consumer, the majority of Google's revenue comes from advertisers, so there is nothing stopping both companies revenue growing side by side.
Google is also a long term value play. From my interview, and also my previous article, companies are recognizing that developing free apps for Android can be a great marketing play and while there might be a lot of debate about how much money they are making off apps, it should always be remembered that for Google it is about search.
Apple in my opinion is becoming a long term value play because there is no reason to expect sudden drops in revenue from Apple. They have a solid product line and for the future of the next three to five years, all they need to do is roll out modifications or variations of this product line to maintain sales and all of this supported by a very loyal fan base. If you're a conservative investor, you might want to wait to see how this correction plays out to see if you can get greater value or wait for Q1 results if you're concerned with growth fundamentals.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.